APPRAISING THE IMPACT OF COSTING TECHNIQUES ON PROFITABILITY

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF THE STDUY

Costing technique is the process depending upon the purpose for which managers require information. Management information for a variety of purposes, such as control, decision making, predicting profits and price determination. Based on these, certain techniques and procedures are applied in order to have a comparative analysis of costs both directly and indirectly engaged in manufacturing service. The Oxford Dictionary of Accounting 3rd edition (2005), defined costing techniques as techniques and procedures used in cost accounting and management accounting to obtain the cost of service, products, processes, and cost centers to provide the information required to undertake performance measures, decision making, planning, and control. Costing technique is also termed as a technique of costing which is designed to suit the way goods are processed or manufactured or the way goods are provided, Lucy T. (2002). Therefore, each organization that uses costing techniques has unique features that will suit the company (firm).  Based on the above definitions of costing techniques an organization will field increase in profit if they apply the costing technique at where it is deemed appropriate. Therefore, this research is to examine the costing technique as being applied in Mosmann Water Company Limited to see the impact it has created in the profitability of the organization.

1.2    STATEMENT OF THE PROBLEM

The rapid increase in competition among organizations has brought about an increase in awareness of profitability and the cost associated with the delivery of products and services. These bring into question the relevance of traditional accounting information for decision making, conventional and managerial accounting information is largely driven by the procedures of the organization’s reporting system which provides information that is to be aggregated and used. The problem is how to use this information to be planning and controlling decisions, vis avis profitability.

1.3    OBJECTIVES OF THE STUDY

The objectives of the study are to find out the following;

i) To examine if the impact of costing technique aid in the profitability of an organization. ii) To find out if the appropriate costing technique is being adopted by Mosmann Water Company Limited. iii) To determine whether costing techniques help in the ascertainment of costs of a specified thing. iv) To find out the problems associated with the application of costing techniques in an organization. v) To make useful recommendations based on research findings.

RESEARCH QUESTIONS

i) Does costing techniques aid in the profitability of an organization? ii) Does costing techniques help in the ascertainment of costs in an organization? iii) Which of the costing techniques is deemed appropriate to apply in an organization? iv) What is the problem associated with costing techniques in an organization?

1.5  RESEARCH HYPOTHESES

HYPOTHESES 1

HO:  There is no significant difference between costing techniques and profitability in an organization.

Hi: There is a significant difference between costing techniques and probability in an organization.

HYPOTHESES 2

HO: Costing techniques does not help in the ascertainment of a specified thing.

Hi:   Costing techniques do help in the ascertainment of a cost.

1.6   SIGNIFICANCE OF THE STUDY

The ultimate goal of any industry or organization is to maximize profit. The goal can be achieved in the manufacturing or production company like Mosmann Water Company Uyo, through costing techniques on the probability of an organization. The study is necessary because it would enable the employer and employee of Mosmann Water Company Limited to improve on the ethical behavior in the management of the company. It would be of immense benefit to investors who want to invest in the company and the shareholders of the company to earn more profit. It would also serve as reference material (source) to researchers who might want to further study on a similar topic.

1.7   SCOPE OF THE STUDY

This study centered on appraising the impact of costing techniques on probability with a particular reference to Mosmann Water Company Limited, Uyo.

1.8   LIMITATION OF THE STDUY

This study is limited to the following ways;

TIME CONSTRAINT: The period within which the study is conducted is short for through research study; hence, gathering adequate information becomes very difficult.
FINANCE: This is one of the limitations to the scope of this study as the researcher is facing financial constraints to meet all the needed educational requirements including this research work. This caused the researcher to restrict her research work to one organization for possible study.
LACK OF MATERIALS: Lack of materials to the topic is also another limitation to this research work, hence the researcher resolved to seek a friendly approach in order to obtain the needed materials or information from the establishment under this study through the administration of questionnaire and oral interview.

1.9   DEFINITION OF TERMS

COST: According to CIMA defined cost as the amount of expenditure (actual or notional) incurred on, or attributable to a specified thing or activity.
COSTING: Costing is defined as collecting, recording, classifying and allocating expenditure to ascertain the cost of product or service for planning and control purposes by indicating points where corrective action is required (Anuolam 1997).
TECHNIQUES: This is a method of achieving something or carrying something out especially one requiring some skill or knowledge
PROFITABILITY: This is the quality or state of being profitable.
STANDARD COSTING: This can be defined as the preparation of standard costs and their use to clarify the financial results of business particularly by the measurement of variations of actual costs from standard costs and analysis of causes of the variations for the purpose of maintaining maximum efficiency by executive action (Batty, 2006).
COSTING SYSTEM: This method is to be adopted by an organization depends upon the nature of productive being undertaken by the organization (Kingsley, 2003).

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